Oil Giants Find There’s Nowhere to Hide From Doomsday Market

Exxon Mobil Corp. and Royal Dutch Shell Plc this week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years.

Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating.

Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline. Chevron posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes.

“What we’re seeing is that there’s just no place for the supermajors to hide,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said in an interview. “Oil prices, natural gas, refining, it all looks very bad right now.”

Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices.

Given the plunge in crude and natural gas markets, “you cannot recover, no matter how efficient you are,” Fadel Gheit, an analyst at Oppenheimer & Co., said during an interview with Bloomberg Television. “The industry cannot survive on current oil prices.”

Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 percent amid the lowest refining margins for the second quarter since 2010. U.S. margins, based on futures contracts, plunged 30 percent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier.

Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.

BP’s profit, adjusted for one-time items and inventory changes, dropped to $720 million from $1.3 billion a year earlier, the company said on July 26. That missed the $819 million average estimate of 13 analysts surveyed by Bloomberg. Downstream earnings, which include refining, declined 19 percent.

Output Hurt

Exxon, the world’s biggest oil explorer by market value, said wildfires that ravaged the oil-sands region of Western Canada, along with aging wells, reduced output. Its U.S. oil and natural gas wells lost an average of $5.6 million a day during the quarter.

At Shell, the largest oil producer after Exxon, profit adjusted for one-time items and inventory changes sank 72 percent from a year earlier to $1.05 billion, less than half the $2.16 billion analysts had expected.

Shell Chief Executive Officer Ben Van Beurden, who this year completed the record purchase of BG Group Plc, has vowed to boost savings from the acquisition following the two-year slump in crude.

It was Chevron’s third straight quarterly loss, the longest slump for the company since at least 1989, according to data compiled by Bloomberg.

Still Adjusting

Chevron Chairman and CEO John Watson said the company continues to adjust to the lower-price environment. He has responded to the market-driven cash squeeze by shrinking drilling programs, writing off discoveries that were too costly to develop at current prices and firing one-tenth of the workforce. The company is seeking to bolster its balance sheet by raising $5 billion to $10 billion from asset sales.

Despite the rout, and credit-rating cuts, Chevron greenlighted a $36.8 billion expansion of a key Central Asian oilfield earlier this month. This week, the company committed to distribute a $1.07-a-share dividend that will eat up about $2 billion in cash when paid out to investors in September.

Exxon Chairman and CEO Rex Tillerson has been looking beyond the current downturn in energy markets to augment the company’s gas and oil portfolios from the South Pacific to Africa. The company also is plowing money into expanding refining and chemical complexes from Singapore to The Netherlands, betting that regional demand for products used in automobile tires, engine oil and plastics will grow over the long term.

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Comments

Bonus Group: It is understandable that a niche now exists in the market for a company similar to BG Group, but for Neptune Energy to set its aim at emulating and becoming like BG is nothing short of horrifying. Why anyone should wish to recreate the inept management, twisted HR policies and rancid technical half truths of BG Group in order to deceive the shareholders is beyond comprehension. If they do, then the Serious Fraud Office should be on the alert. Sammy 'two pools', whose past remit included selling Enterprise Oil to Shell, rather than ENI is made of sterner stuff. That said, his nuclear ambitions did fall somewhat short of those of Kim Yong Un. Let's wish Neptune Energy a long, scandal free future and greater integrity than bungling BG with its House of Cards and flamboyant ineptitude.

Bogus Group: Following the acquisition of Engie the Financial Times headline “Neptune Energy sets aim on being the next BG Group” may have sent a chill through some. To think there could possibly be a rise from the ashes is an alarming prospect
However there was some comfort in the company chairman statement “We have the opportunity to take the time to get it right”.
Hopefully this means their Ethics and Compliance foundation will actually be more than just another policy open to distortion by misconduct.

Bill Campbell: Is the New York City case against Oil Companies justifiable or just hot air?

Many, if not all prestigious US scientific journals estimate largest source of air pollution in US is caused by vehicle emissions. Current estimates that US has some 260 million automobiles and 11 million trucks. It is the daily emissions from these vehicles that are the cause of scientific concern. But anybody visiting Florida, and following a construction truck, will be familiar with black smoke in copious amounts emitting from the vertical exhaust pipe, sometimes it's so bad it can restrict your vision but Florida is not the only state of the US that does not require emission control, there are many more, monitoring for example (like a UK vehicle MOT) is not legally required or carried out.

So perhaps De Blasio should start suing these delinquent states.

In any case, I find the whole matter ludicrous in a country, where their President claims that human activity is not related in any way to global warming and appoints a head of EPA who is also so inclined (a man described by NY Times as an arsonist in the Fire Station) so why does Shell et all not call as witnesses in their defence the current EPA Director, or otherwise why does De Blasio not start by suing those states that allow millions of vehicles to pollute the atmosphere daily.
Bill

Bonus Group: Further to my last post on this blog. Sound Energy have now arranged a slap-up bean feast for their shareholders to be held on 15th February at Grace Hall, Leadenhall Street, London. Drinks at Carriages afterwards. Dress is formal so don't expect too energetic a food fight. Attendees must pay for their own tickets! All will be revealed about the new Coro strategy. You may recall that Sound shareholders will receive Coro shares as a result of the divestment of Sound's Italian assets. The question is whether Sound shareholders will end up in the soup.

Bonus Group: There are rumblings in the ether about Rockhopper Exploration plc having failed to perform Due Diligence with integrity in respect of their purchase of the Italian focused company Mediterranean Oil and Gas (MOG) in 2014, and in particular MOG's asset, the Ombrina Mare oil field.
Following the decision in February 2016 by the Ministry of Economic Development not to award the company a production concession covering the Ombrina Mare field, the company has considered its legal options with regard to obtaining damages and compensation from the Republic of Italy for breaching the Energy Charter Treaty (ECT).
Could this have anything to do with the sudden and unexpected departure of Rockhopper's Chief Operating Officer, one 'Good Time' Fiona MacAuley? Fiona, a Chartered Geologist, started her career with Mobil North Sea Limited in 1985 and has subsequently held key roles in a number of leading oil and gas firms across large mid and small cap E&Ps including BG and Hess.
Fiona is now Chief Executive Officer of Echo Energy plc where Stephen Whyte (also ex BG) is a Non-Executive Director, previously having been Chairman of Sound Energy. Fiona will also become a Non-Executive Director of Saffron Energy plc. It is proposed that Saffron acquires Sound Energy's portfolio of Italian interests and permits through the acquisition by Saffron of Sound Energy Holdings Italy Limited (SEHIL). SEHIL holds all of Sound Energy's Italian oil and gas interests through its own wholly owned subsidiary, Apennine Energy SpA (APN). It is proposed that Saffron will be renamed Coro Energy plc.
This is yet another 'reverse takeover' by the Sound Energy/Echo Energy Team. The share options for the directors are raining on them like confetti. Could there be bonuses in store for the Directors of this association of companies where the paint is never allowed to dry?
Plenty of 'smoke and mirrors' and wool being pulled over the shareholders' eyes in this can of worms.

Bogus Group: No doubt Chevron and partner Serica Energy will have their legal and commercial teams in action. Production on the partner owned Erskine platform has been shut down due to a blockage in the Chrysaor operated Lomond - Everest pipeline export route. Chrysaor purchased the assets from Shell who in turn inherited from BG Group.
Déjà vu springs to mind, as the Chevron partnership’s revenue was affected two years ago, due to a blockage in the same pipeline when BG Group was the operator.
The well-touted “lessons learned” jargon, will no doubt be on the lips of these companies executives as they scurry to apportion blame.
In a previous post Bonus Group stated “BG shrapnel has fragmented in the direction of Tailwind Energy”
This appears to be a similar story as other BG shrapnel (both operations and legal) moved to Chrysaor via the Shell route.
I’m sure the Chrysaor mob will feel comfortable dealing with the legal and commercial issues experienced with BG Group (later Shell), as it will be the same rhetoric for the causal factors. However Chevron and Serica may want to dig a bit deeper into the previous incident, to see how BG Group dealt with this, the transparency of reporting and who was made accountable.

Ornithologist: If it walks like a duck, quacks like a duck, it may well turn out not to be a penguin!

Bonus Group: BG shrapnel has fragmented in the direction of Tailwind Energy (aka Tailspin Energy!). Much hot air from after-burn can be expected from this company - mercurial bunch. In December they announced the acquisition of Shell Expro's interests in Triton Cluster, located in the UK Central North Sea 190km east of Aberdeen. Their stated intention is to further develop the asset. Probably through a three pronged approach: bonus, bonus and more bonus! Will Triton turn-out to be a flounder?

Bill Campbell: End of ammunition supply!
Not sure what the ammunition comment means, are you being positive or negative. If Shell keep supplying the ammo well this website is under no obligation not to use it surely. We would all like the ammo to dry up. It would be pleasant to see the most corrupt organisation in Europe turn the corner, and for example demonstrate daily openness,honesty and integrity instead of serial lies. When I say it's a corrupt organisation I do not infer this characteristic on the worker bees, but it is clearly corrupt from the top to the top, that is in its boardroom, including the non-executives who tend to know what goes on but sit on their hands, anything for an easy life. Highly paid window dressing.

Ammunition: Mr Donovan, Shell seems to have provided you with a huge amount of ammunition over the years. Is there any end in sight?

Royal Dutch and The Law: Hello website, can I suggest that if the Dutch and Itailian Prosecution services are not aware of the Shell /police authority "happenings" in Eire, that they should be and quickly.

Shell Corrib Corruption: Mr D I make the reference of a link with police heroin dealing inquiry on this fact Athlone police station ( Heroin hub ) was the chosen destination for the balance of the Shell alcohol consignment on the instruction of Garda Sub Aqua SUPREMO Liam Grimes so that's drugs and alcohol meeting in the same police station "of all the police stations in all the world you had to walk into mine "...is there a " link. "Time will tell ...we recognise that 99 out of 100 Irish police personnel are amongst the finest in Europe....however ....

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